LUKOY - Lukoil

[JBird]

In the last 5 years, the highest this stock traded was $73, which was in April 2011. Earnings and reserves for the last 5 years were about the same, and in some cases even higher than now. I know the stock is really cheap under both of those metrics, but given that the stock has been less than 50% higher under the same numbers over the last 5 years, can this be a possible value trap? (not sure if that's the right term)

 

I know the dividend yield is healthy but this doesn't seem to be an obvious double based on the valuation in recent years. I am not sure if it's worth the political risk.

 

Maybe I'm missing something. Thoughts?

 

It sounds like what you're asking is, this stock hasn't risen much in the past, is it possible that the future will continue to look like the past?

 

Yes, that's a possible outcome. So maybe you'll find more comfort in stocks that have appreciated significantly in recent years.

[Mephistopheles]

In the last 5 years, the highest this stock traded was $73, which was in April 2011. Earnings and reserves for the last 5 years were about the same, and in some cases even higher than now. I know the stock is really cheap under both of those metrics, but given that the stock has been less than 50% higher under the same numbers over the last 5 years, can this be a possible value trap? (not sure if that's the right term)

 

I know the dividend yield is healthy but this doesn't seem to be an obvious double based on the valuation in recent years. I am not sure if it's worth the political risk.

 

Maybe I'm missing something. Thoughts?

 

It sounds like what you're asking is, this stock hasn't risen much in the past, is it possible that the future will continue to look like the past?

 

Yes, that's a possible outcome. So maybe you'll find more comfort in stocks that have appreciated significantly in recent years.

 

That's not what I said whatsoever.

 

I'm talking about valuation. I am saying that the stock barely trades into the high single digit P/E ratios, at least over the last 5 years. And this is also considering reserves have been about the same or higher in the same time period. So my only question is that are we being too optimistic by assuming it can double or more? It seems like due to the political nature of the country it's in, it seems to permanently sell for a large discount to American peers.

[siddharth18]

http://www.nytimes.com/2014/03/29/business/international/crimea-crisis-has-little-impact-thus-far-on-russian-oil-deals.html?rref=business

[yadayada]

In the last 5 years, the highest this stock traded was $73, which was in April 2011. Earnings and reserves for the last 5 years were about the same, and in some cases even higher than now. I know the stock is really cheap under both of those metrics, but given that the stock has been less than 50% higher under the same numbers over the last 5 years, can this be a possible value trap? (not sure if that's the right term)

 

I know the dividend yield is healthy but this doesn't seem to be an obvious double based on the valuation in recent years. I am not sure if it's worth the political risk.

 

Maybe I'm missing something. Thoughts?

 

It sounds like what you're asking is, this stock hasn't risen much in the past, is it possible that the future will continue to look like the past?

 

Yes, that's a possible outcome. So maybe you'll find more comfort in stocks that have appreciated significantly in recent years.

 

That's not what I said whatsoever.

 

I'm talking about valuation. I am saying that the stock barely trades into the high single digit P/E ratios, at least over the last 5 years. And this is also considering reserves have been about the same or higher in the same time period. So my only question is that are we being too optimistic by assuming it can double or more? It seems like due to the political nature of the country it's in, it seems to permanently sell for a large discount to American peers.

well the valuation is based on emotion, because of the incident with that other oil company. Like packer said, telecoms are trading at the same multiples as western equivalents. So I think like all emotion it will wane off eventually, and the market will realize it is being irrational. So I think time is a catalyst here. Doesn't help that putin keeps invading countries tho.

 

[Mephistopheles]

In the last 5 years, the highest this stock traded was $73, which was in April 2011. Earnings and reserves for the last 5 years were about the same, and in some cases even higher than now. I know the stock is really cheap under both of those metrics, but given that the stock has been less than 50% higher under the same numbers over the last 5 years, can this be a possible value trap? (not sure if that's the right term)

 

I know the dividend yield is healthy but this doesn't seem to be an obvious double based on the valuation in recent years. I am not sure if it's worth the political risk.

 

Maybe I'm missing something. Thoughts?

 

It sounds like what you're asking is, this stock hasn't risen much in the past, is it possible that the future will continue to look like the past?

 

Yes, that's a possible outcome. So maybe you'll find more comfort in stocks that have appreciated significantly in recent years.

 

That's not what I said whatsoever.

 

I'm talking about valuation. I am saying that the stock barely trades into the high single digit P/E ratios, at least over the last 5 years. And this is also considering reserves have been about the same or higher in the same time period. So my only question is that are we being too optimistic by assuming it can double or more? It seems like due to the political nature of the country it's in, it seems to permanently sell for a large discount to American peers.

well the valuation is based on emotion, because of the incident with that other oil company. Like packer said, telecoms are trading at the same multiples as western equivalents. So I think like all emotion it will wane off eventually, and the market will realize it is being irrational. So I think time is a catalyst here. Doesn't help that putin keeps invading countries tho.

 

 

Hm, that's interesting, thx for your response. I didn't realize that about telecoms. I'll have to dig further into this idea.

[fareastwarriors]

Lukoil Starts Iraq Oilfield as Output Reaches 35-Year High

 

 

 

 

http://www.bloomberg.com/news/2014-03-29/lukoil-starts-iraq-oilfield-as-output-reaches-35-year-high-1-.html

[leftcoast]

Finally got around to digging into Lukoil this weekend. Man, they have a fantastic website for investors!

 

First, for those who haven't seen it - McDep posted a new update on LUKOY today:  Meter Reader: Lukoil (LUKOY) - Economic Opportunity in Political Risk

(Spoiler: He remains bullish despite the Ukraine crisis. And it's encouraging to read that the CEO bought almost a million shares this month.)

 

Next, a few questions for those that have been following and researching Lukoil for a while:

[*]According to several different sources I've read, Lukoil's President/CEO (Vagit Alekperov) and VP of Strategic Development (Leonid Fedun), own 30% to 40% of the company. However, on Lukoil's corporate website (dated Mar 11, 2014), it states that Alekperov owns just 2.4%, and Fedun owns 1.5%.  Which is correct, and/or why is there a discrepancy?

 

 

[*]This morning Reuters put out an article on bargain-hunting in the Russian stock market. It quotes Jim Rogers as saying that he's currently buying Russian stocks, but not energy companies.

Rogers, who has been investing in Russia for the last 1-1/2 years, said he bought Russian stocks last week. He said if more sanctions are imposed and the equities market declines further, there would be more buying opportunities in Russia. Rogers said he is looking for non-energy companies...

No further context for the comment is provided in the article. I know some folks here have been influenced by Rogers' views on Russia. Any thoughts on why he would be bullish on Russian stocks generally, but avoiding energy stocks?

 

 

[*]What do you feel is the best metric for valuing Russian O&G companies and comparing them to others? Here are my current rough estimates of LUKOY's valuation discount relative to different peer groups using various metrics:

PEER GROUP	EV/EBITDA	P/E	P/B	EV/Reserves
Russian Oil Companies	0-50%	0-50%	n/a	30%
EM Oil Majors	55%	60-70%	45-55%	80%
Western Oil Majors	30-45%	55%	60-80%	70-90%

 

The EV/Reserves ($/boe) metric is a common one in the oil industry, but it feels wrong to use this metric to compare Russian oil companies with developed market oil companies, because Western companies generate much higher EBITDA for each boe produced (see attached). So their reserves should be worth much more than Lukoil's, no?  (Especially since Lukoil can't sell their reserves to foreign companies.)

 

And with EV/EBITDA, my concern is that it doesn't account for taxes, which seem particularly relevant for Russian O&G companies, which are always at risk of being bled dry by the Kremlin.

 

 

Any thoughts appreciated!

[fareastwarriors]

Key Call: Lukoil

Launches production from West Qurna 2

UBS_key_call_3-31-14.pdf

[yitech]

Russia Urges Companies to Delist From Abroad Amid Sanctions

 

http://www.bloomberg.com/news/2014-04-08/russia-asks-companies-to-delist-from-bourses-abroad-for-security.html

 

I guess Russians will do anything. However irrational it may seem...

[xtreeq]

Lukoil sells 50% interest in 4 projects in Kazakhstan to Sinopec for USD 1.2 Bn:

 

http://www.lukoil.com/press.asp?div_id=1&id=3999&year=2014

 

Given the low debt ratio of the company I don't quite understand this move ... I wonder if this is not a move by Putin to ensure that Russia has a market for its oil (i.e. China) should things get rough in the Ukraine vis-a-vis the West ....

 

Any thoughts on the price or the implications?

[phil_Buffett]

Lukoil sells 50% interest in 4 projects in Kazakhstan to Sinopec for USD 1.2 Bn:

 

http://www.lukoil.com/press.asp?div_id=1&id=3999&year=2014

 

Given the low debt ratio of the company I don't quite understand this move ... I wonder if this is not a move by Putin to ensure that Russia has a market for its oil (i.e. China) should things get rough in the Ukraine vis-a-vis the West ....

 

Any thoughts on the price or the implications?

 

http://www.bloomberg.com/news/2014-04-15/sinopec-to-pay-1-2-billion-for-lukoil-s-stake-in-kazak-assets.html

 

in this article an Analyst says that production is falling and costs are rising, so it was good to sell it. 

 

i dont know the exact figures and cant say if it is positive or negative.

[LC]

• [*]According to several different sources I've read, Lukoil's President/CEO (Vagit Alekperov) and VP of Strategic Development (Leonid Fedun), own 30% to 40% of the company. However, on Lukoil's

corporate website (dated Mar 11, 2014), it states that Alekperov owns just 2.4%, and Fedun owns 1.5%.  Which is correct, and/or why is there a discrepancy?

 

I am curious about this as well. Does anyone know where foreign insider ownership is filed? The closest I've found is this article:

 

http://www.bloomberg.com/news/2014-02-25/lukoil-ceo-alekperov-buys-77-million-of-company-shares-in-2014.html

 

But I cannot find a source to the original filings.

[fareastwarriors]

from bloomberg

[constructive]

In addition to direct holdings, I think I've read that management also owns a large indirect stake through a holding company.

 

http://www.lukoilamericas.com/lukoil-press-release/121-top-managers-increase-stakes-in-lukoil-share-capital

 

As a result of the transactions, Vagit Alekperov’s stake in LUKOIL share capital inclusive of beneficial ownership reached 20.87%, while the stake of Leonid Fedun came to 9.5%.

[fareastwarriors]

In addition to direct holdings, I think I've read that management also owns a large indirect stake through a holding company.

 

http://www.lukoilamericas.com/lukoil-press-release/121-top-managers-increase-stakes-in-lukoil-share-capital

 

As a result of the transactions, Vagit Alekperov’s stake in LUKOIL share capital inclusive of beneficial ownership reached 20.87%, while the stake of Leonid Fedun came to 9.5%.

 

thanks,

[yadayada]

Seems they spend huge amount of cap ex in the last 9 years or so. But so far net income barely grew? It dropped in 2013. Net income went from 6.4 bn$ to 7 billion$ basicly in 9 years.

 

like 78 billion went into capex vs like 31bn$ of depreciation over that period. So what will happen in the future? Will they become a cash cow at some point? And is the drop in net income due to corruption? Since depreciation and capex should like almost level out in the long run (otherwhise this doesnt look that cheap) they should have to generate like 47 bn$ of FCF more then net income so far to make up for last 9 years?

 

Isnt there risk that by the time they should become a cash cow, their oil wells start to dry up. And so this will keep repeating. If you discount that, this thing is trading more at like 7-8x earnings. And there are less risky oil company's you can have for that multiple. Seems like their huge investments didn't really yield that much results.

[frommi]

LUKOIL BOARD OF DIRECTORS APPROVES KEY ITEMS ON THE ANNUAL GENERAL SHAREHOLDERS MEETING AGENDA

http://www.lukoil.com/press.asp?div_id=1&id=4004&year=2014

 

They intend to raise the dividend from 90 rubel to 110 rubel. Gives it a 5.6% dividend yield at current prices with a dividend growth of around 20%. I wanted to like it but they have no Like button. :)

[phil_Buffett]

LUKOIL BOARD OF DIRECTORS APPROVES KEY ITEMS ON THE ANNUAL GENERAL SHAREHOLDERS MEETING AGENDA

http://www.lukoil.com/press.asp?div_id=1&id=4004&year=2014

 

They intend to raise the dividend from 90 rubel to 110 rubel. Gives it a 5.6% dividend yield at current prices with a dividend growth of around 20%. I wanted to like it but they have no Like button. :)

 

thanks frommi. sounds good

[yadayada]

Seems they spend huge amount of cap ex in the last 9 years or so. But so far net income barely grew? It dropped in 2013. Net income went from 6.4 bn$ to 7 billion$ basicly in 9 years.

 

like 78 billion went into capex vs like 31bn$ of depreciation over that period. So what will happen in the future? Will they become a cash cow at some point? And is the drop in net income due to corruption? Since depreciation and capex should like almost level out in the long run (otherwhise this doesnt look that cheap) they should have to generate like 47 bn$ of FCF more then net income so far to make up for last 9 years?

 

Isnt there risk that by the time they should become a cash cow, their oil wells start to dry up. And so this will keep repeating. If you discount that, this thing is trading more at like 7-8x earnings. And there are less risky oil company's you can have for that multiple. Seems like their huge investments didn't really yield that much results.

 

Anyone? They pumped huge capex into new infrastructure. And with Gazprom this is how they funneled money out of the company. They overpaid for infrastructure. I dont really see earnings improving. It doesn't look very cheap. How do you know this equipment where all the earnings went into, will generate significant future cashflows?

 

I added excel file. You see that equipment basicly trippled in last 9 years or so. Net income barely went up, they generated 78 billion in net income, and also spent that amount in Capex. But generated only 19 billion $ in free cash flow. So I wonder when will we see these amazing new earnings. We should see 10's of billions of $ in freecash flow right? let's say most of their capex in 2007? Where did it go? That equipment is now 7 years old or so. At some point you should see results there? It looks too me returns are diminishing.

 

If they keep pumping capex into these things it doesn't seem that this is very cheap at all. At some point you gotta see increased net income right? If equipment tripples like that.

 

Edit: Compared it with BP. Oil reserves are funnily the same. But it seems for both they are pretty much replaced each year, so they dont really go down. I have no clue how to gauge that.

lukoil.xlsx

lukoil.xlsx

[constructive]

The dip in 2013 notwithstanding, the trend in revenues, income, cash from operations, etc. is clearly up over the last decade. They have also spent almost $20B on dividends and buybacks since 2007.

 

CFO / net PP&E = 21%, higher than Exxon. 5-10 years ago they had extremely attractive opportunities to deploy cash. They can't invest at the same returns now, but the returns they can get on capex are still pretty healthy.

[yadayada]

it seems the biggest influence on margins is Cost of purchased crude oil, gas and products. went from 37 billion to 66 billion$. Rest of costs barely went up. I assume this is from their gas stations?

 

Reason Im wary is corruption :) . Kinda scared some of that Capex investment is just funneled away money.

[PatientCheetah]

Has anyone looked at the long term stock chart? It didn't go anywhere for the past 5 years. What will be the catalysts now that investors will rush into this stock and expand the multiple? We are at the low end of the range but the upside is somewhere between $65-70.

[Packer16]

If the stock had a catalyst it would not be trading where it is today.  What the catalyst could be is numerous: deescalation in Ukraine, re-rating to Western value multiples (EBITDA, reserves), increased dividends (which has happened), stock buybacks (which has happened also).

 

Packer

[cubsfan]

The guys at First Pacific filed today - and bought LUKOY.  That surprises me they are so conservative about

the downside. Looks like they are putting together a basket of Russian energy stocks. Interesting approach.

They are sharp investors.

 

http://www.gurufocus.com/StockBuy.php?GuruName=First+Pacific+Advisors&cache=clear&updown=down&order=impact&action=buyonly

 

 

[constructive]

Has anyone looked at the long term stock chart?

 

I think you can safely assume that the answer to this question is always yes.